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Comment by raverbashing | Hacker News Reader

The 25% delivery fee is fine as long as it's explicitly charged to the consumer and not charged as commission from the "restaurant cost"

I have no qualms if I order on the system and it shows, let's say:

- Pizza: $15

- Delivery fee: $9

And the entirety of the $15 goes to the restaurant

But that doesn't seem to be happening

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The restaurants have this option, and I frankly have no idea why they don't pass the entire cost of delivery onto the customer. I'm happy to pay a delivery fee, though not everyone will, but the restaurant can strike a balance -- they can choose to raise their prices in general, to fund some of the delivery cost from their direct-ordering and in-person traffic. That's what they're doing anyway, just not being explicit about it.

There's some information asymmetry. A $24 pizza with free delivery might look to a consumer like a better deal than a $15 pizza with $9 delivery because the consumer can't tell that it's the same pizza. The $24 pizza might be more expensive because they use better ingredients, and the delivery might be free because of a loss leader. Or at least it might look that way to the consumer.

Another, probably cleaner way around this information asymmetry is the reviews that already exist on these apps. If you order a $24 pizza and something the quality of Domino's arrives at your door, you're not going to enjoy that place and you're not going to rate it very highly. There are plenty of problems with review systems, but there are problems with price caps too.

Are you attempting to explain why we don't see restaurants offering free shipping while rolling the cost into the food price?

Because we do see this happen, which suggests to me that reviews are not effective enough in practice to overcome the perception advantage of the information asymmetry.

No, I'm suggesting that, to the degree that customers suffer from delivery fees rolled into prices, that should be reflected in reviews. Pricing isn't determined entirely by ingredient cost, so there's nothing inherently wrong with a $24 pizza A that has cheaper ingredients than an $18 pizza B (maybe Mr. A is just better at making a pizza). What matters is that the customer feels like the value they're getting from pizza A isn't dramatically misaligned with its cost (incl the delivery fee). This is the kind of thing that reviews do capture.

You don't seem to realize that restaurants already pass the costs of delivery to consumer?

Out of a $15 order at a restaurant. There is $5 paying for the food (30% of the price, general practice in the industry). The other $10 are supposed to cover waiters, chefs, service, rent, taxes, profits, etc...

But there is no service and no large rent when doing delivery rather than dine in. The extra money should be enough to cover delivery. Yet restaurants and apps prefer to tack on another $5-10 in delivery fees, easy margin.

In some ways this is what I find most bothersome about it. The restaurants all want us to order directly from them, but you pay the same prices as if you went through Grubhub or whatever. So if you call them directly, you're not really "helping" them -- you're just subsidizing all the Grubhub people.

Delivery apps and websites highlight and promote restaurants with "free" delivery. Anecdotally, people like feeling like they are getting a good deal. The "free delivery" that is included in food pricing is more enticing than cheaper food with a $9 delivery.

Maybe; as a gimmick. But as you become familiar with restaurants in the area instead of just trying them out for the first time, you'll start to develop affinities. Maybe not everyone, maybe not every time, but if the restaurants doing the free delivery thing are losing money on every sale, eventually this achieves an equilibrium (so long as the market is not being artificially pumped by capital injections).

Same reason if you dont do "free shipping" on ebay you get shafted.

The market is conditioned to look for the free shipping label.

You may be able to see through the sham, I can assure you, many others do not.

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